Drug Industry Seeks to Sway Prices Overseas

By ELIZABETH BECKER

Published: November 27, 2003

WASHINGTON, Nov. 26—
Having beaten back price controls on prescription drugs in the United States, the American pharmaceutical industry is trying to roll them back overseas, with help from the administration and Congress.

In talks over a free trade agreement with Australia, American officials are pressing to water down the system under which the Australian government negotiates the prices it pays for prescription drugs, Mark Vaile, the Australian minister for trade, said here Wednesday. Mr. Vaile said that the American negotiators had raised this ''in amongst a range of issues, not as a core issue.''

If successful, the United States could use this agreement as a benchmark for trade deals with other rich nations. Loosening price controls is a priority for the drug industry, which gets most of its profits in the United States and argues that prices here could be lower if other nations paid their share of the cost of developing drugs.

Mr. Vaile, in a briefing for reporters, said that his government would stand firm against any terms that would affect ''the ability of the Australian government to provide inexpensive medicine to its citizens.''

He met here this week with Robert B. Zoellick, the United States trade representative, and confirmed that the issue would be on the agenda for formal talks between the countries in Washington next week. The negotiators have set a Dec. 31 deadline for completing an agreement.

Analysts say that the drug issue could be part of the horse trading over Australia's desire to export more agricultural products to the United States and Washington's push to ease access to Australian markets for the American entertainment and service industries.

The legislation passed by Congress this week to establish a prescription drug benefit in the Medicare program specifically forbids the government to use its influence to negotiate lower drug prices. That provision was a top goal of the drug industry in its lobbying on the measure.

The Medicare bill also requires the Bush administration to apprise Congress on progress toward opening Australia's drug pricing system. Drug industry executives said that provision was a sign of how badly their backers on Capitol Hill want to see trade agreements used to challenge foreign governments' price-control systems, especially when Americans are flocking to Canada to buy inexpensive medicine.

In the free trade talks, drug industry executives said, the United States is asking that Australia agree that its Pharmaceutical Benefits System pay higher prices for new medicines and make other changes in how it sets the prices of prescription drugs.

''This is all going on in this larger context of growing unrest in the United States that other countries are not paying their share of the cost of pharmaceutical research,'' said Ian Spatz, vice president for public policy at Merck & Company.

Officials in Mr. Zoellick's office said that no formal proposal had been put in writing. ''What we are looking at are ways to reward innovative medicine and to promote transparency,'' said a senior American trade official.

Dr. Mark B. McClellan, the commissioner of the Food and Drug Administration, said in a speech in September that since the benefits of American drug innovations are global, the costs of the research and development of the drugs should be global as well.

''The United States is now covering most of these costs of developing a new drug to the point where it can be used by the population of the world,'' Dr. McClellan said. ''But it is clear to me that we cannot carry the lion's share of this burden for much longer.''

A month's supply of Lipitor, a cholesterol-lowering drug, that costs about $120 in the United States costs about half as much at drugstores in Canada and Italy -- two nations that, like Australia, have government price controls. The price difference is even bigger for Prevacid, a heartburn drug, and Paxil, an antidepressant, according to a recent informal survey of drugstores in the three countries.

But rather than demand an increase in foreign spending on research and development, as some specialists have suggested, the administration is asking that countries agree to pay American drug companies more for the medicines they buy for their government health programs.

Mark Weisbrot, co-director of the Center for Economic and Policy Research, a research center in Washington, criticized the American strategy.

''This is a terrible extension of the inefficiency and inequity of our own system,'' Mr. Weisbrot said.

''The administration is right that something has to change,'' he said. ''But it should be here, not in countries with an effective method to finance pharmaceuticals for their citizens.''

The pharmaceutical industry disagrees. The World Trade Organization now enforces intellectual property rights, including drug patents, in large part because of industry pressure.

And though the United States bowed to pressure and agreed to help poor nations buy generic medicines through exemptions from trade rules, the drug companies contend that wealthy nations use the negotiating power of their national health systems to demand unfair, arbitrary prices.

Mr. Vaile, however, said that the issue had no place in trade talks dedicated to opening markets, because American pharmaceutical companies face no trade barriers in Australia.

''Any American drug company can sell in Australia, and they can sell to the P.B.S. scheme,'' said Mr. Vaile, referring to the Australian drug benefit program.

Like Americans, Australians will go to the polls next year, and any serious tampering with the health benefit system could be a liability to the Liberal Party of Prime Minister John Howard.

Tony Abbott, the minister of health, said on Australia's Channel 7 television this month that ''the American drug companies don't like the P.B.S. because the government uses its position as a massive purchaser of drugs to keep prices down -- and that's the way it should be.''

Mr. Vaile disputed contentions by the American pharmaceutical industry that Australians do not pay their fair share of research costs or that Australia can provide low-cost medicines to its citizens only by taking advantage of American consumers.

''The Australian taxpayer also pays for research and development,'' he said, noting that the government has a $500 million medical research budget. ''But it is different in Australia. We are a differently structured society.''

Photo: Prime Minister John Howard of Australia and President Bush spoke with reporters after meeting on Sunday. (Photo by Agence France-Presse -- Getty Images)(pg. C2)